Chapter 1
An Introduction to Managerial Accounting and Cost Concepts
True/False
1. Manufacturing overhead is an indirect cost with respect to units of product.
Level: Medium LO: 1 Ans: T
2. Depreciation on office equipment would not be included in the cost of goods manufactured.
Level: Easy LO: 2,4 Ans: T
3. Rent on a factory building used in the production process would be classified as a period cost and as a
fixed cost.
Level: Medium LO: 2,5 Ans: F
4. Period costs are found only in manufacturing companies, not in merchandising companies.
Level: Medium LO: 2 Ans: F
5. Depreciation on equipment a company uses in its selling and administrative activities would be
classified as a product cost.
Level: Medium LO: 2 Ans: F
6. If the finished goods inventory increases between the beginning and the end of a period, then the cost
of goods manufactured is smaller than the cost of goods sold.
Level: Hard LO: 3,4 Ans: F
7. The cost of goods manufactured is calculated by adding the amount of work in process at the end of the
year to the cost of raw materials used, direct labor worked, and manufacturing overhead incurred for the
year and then subtracting work in process at the beginning of the year.
Level: Medium LO: 4 Ans: F
8. A publisher that sells its books through agents who are paid a constant percentage commission on each
book sold would classify the commissions as a fixed cost.
Level: Medium LO: 5 Ans: F
9. Variable costs per unit are affected by changes in activity.
Level: Easy LO: 5 Ans: F
Brewer, Introduction to Managerial Accounting, 3/e 1
,10. A cost is either direct or indirect. The classification will not change if the cost object changes.
Level: Medium LO: 6 Ans: F
11. The amount that a manufacturing company could earn by renting unused portions of its warehouse is
an example of an opportunity cost.
Level: Easy LO: 7 Ans: T
Multiple Choice
12. Indirect labor is a part of:
A) Prime cost.
B) Conversion cost.
C) Period cost.
D) Nonmanufacturing cost.
Source: CPA, adapted
Level: Medium LO: 1,2 Ans: B
13. The cost of lubricants used to grease a production machine in a manufacturing company is an example
of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) none of the above.
Level: Easy LO: 1,2 Ans: C
14. The salary paid to the president of King Company would be classified on the income statement as
a(n):
A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.
Level: Easy LO: 1 Ans: A
2 Brewer, Introduction to Managerial Accounting, 3/e
,15. Direct labor cost is a part of:
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Easy LO: 1 Ans: C
16. Direct material cost is a:
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 1 Ans: B
17. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
Source: CPA, adapted
Level: Easy LO: 1 Ans: B
18. Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.
Level: Easy LO: 1 Ans: C
Brewer, Introduction to Managerial Accounting, 3/e 3
, 19. Wages paid to a timekeeper in a factory are a:
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 1 Ans: D
20. Property taxes on a company’s factory building would be classified as a(n):
A) product cost.
B) opportunity cost.
C) period cost.
D) variable cost.
Level: Easy LO: 2,5,7 Ans: A
21. Depreciation on a personal computer used in the marketing department of a manufacturing firm would
be classified as:
A) a product cost that is fixed with respect to the company’s output.
B) a period cost that is fixed with respect to the company’s output.
C) a product cost that is variable with respect to the company’s output.
D) a period cost that is varaible with respect to the company’s output.
Level: Medium LO: 2,5 Ans: B
22. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who
have undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients
would be classified as:
A) direct costs of the patients.
B) indirect costs of the patients.
C) overhead costs of the nursing station.
D) period costs of the hospital.
Level: Hard LO: 2,6 Ans: A
23. All of the following would be classified as product costs except:
A) property taxes on production equipment.
B) insurance on factory machinery.
C) salaries of the advertising staff.
D) wages of machine operators.
Level: Easy LO: 2 Ans: C
4 Brewer, Introduction to Managerial Accounting, 3/e
An Introduction to Managerial Accounting and Cost Concepts
True/False
1. Manufacturing overhead is an indirect cost with respect to units of product.
Level: Medium LO: 1 Ans: T
2. Depreciation on office equipment would not be included in the cost of goods manufactured.
Level: Easy LO: 2,4 Ans: T
3. Rent on a factory building used in the production process would be classified as a period cost and as a
fixed cost.
Level: Medium LO: 2,5 Ans: F
4. Period costs are found only in manufacturing companies, not in merchandising companies.
Level: Medium LO: 2 Ans: F
5. Depreciation on equipment a company uses in its selling and administrative activities would be
classified as a product cost.
Level: Medium LO: 2 Ans: F
6. If the finished goods inventory increases between the beginning and the end of a period, then the cost
of goods manufactured is smaller than the cost of goods sold.
Level: Hard LO: 3,4 Ans: F
7. The cost of goods manufactured is calculated by adding the amount of work in process at the end of the
year to the cost of raw materials used, direct labor worked, and manufacturing overhead incurred for the
year and then subtracting work in process at the beginning of the year.
Level: Medium LO: 4 Ans: F
8. A publisher that sells its books through agents who are paid a constant percentage commission on each
book sold would classify the commissions as a fixed cost.
Level: Medium LO: 5 Ans: F
9. Variable costs per unit are affected by changes in activity.
Level: Easy LO: 5 Ans: F
Brewer, Introduction to Managerial Accounting, 3/e 1
,10. A cost is either direct or indirect. The classification will not change if the cost object changes.
Level: Medium LO: 6 Ans: F
11. The amount that a manufacturing company could earn by renting unused portions of its warehouse is
an example of an opportunity cost.
Level: Easy LO: 7 Ans: T
Multiple Choice
12. Indirect labor is a part of:
A) Prime cost.
B) Conversion cost.
C) Period cost.
D) Nonmanufacturing cost.
Source: CPA, adapted
Level: Medium LO: 1,2 Ans: B
13. The cost of lubricants used to grease a production machine in a manufacturing company is an example
of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) none of the above.
Level: Easy LO: 1,2 Ans: C
14. The salary paid to the president of King Company would be classified on the income statement as
a(n):
A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.
Level: Easy LO: 1 Ans: A
2 Brewer, Introduction to Managerial Accounting, 3/e
,15. Direct labor cost is a part of:
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Easy LO: 1 Ans: C
16. Direct material cost is a:
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 1 Ans: B
17. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
Source: CPA, adapted
Level: Easy LO: 1 Ans: B
18. Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.
Level: Easy LO: 1 Ans: C
Brewer, Introduction to Managerial Accounting, 3/e 3
, 19. Wages paid to a timekeeper in a factory are a:
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 1 Ans: D
20. Property taxes on a company’s factory building would be classified as a(n):
A) product cost.
B) opportunity cost.
C) period cost.
D) variable cost.
Level: Easy LO: 2,5,7 Ans: A
21. Depreciation on a personal computer used in the marketing department of a manufacturing firm would
be classified as:
A) a product cost that is fixed with respect to the company’s output.
B) a period cost that is fixed with respect to the company’s output.
C) a product cost that is variable with respect to the company’s output.
D) a period cost that is varaible with respect to the company’s output.
Level: Medium LO: 2,5 Ans: B
22. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who
have undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients
would be classified as:
A) direct costs of the patients.
B) indirect costs of the patients.
C) overhead costs of the nursing station.
D) period costs of the hospital.
Level: Hard LO: 2,6 Ans: A
23. All of the following would be classified as product costs except:
A) property taxes on production equipment.
B) insurance on factory machinery.
C) salaries of the advertising staff.
D) wages of machine operators.
Level: Easy LO: 2 Ans: C
4 Brewer, Introduction to Managerial Accounting, 3/e
